Interim report BNG Bank 2020 BNG Bank/Halfjaarbericht 2… · BNG Bank is a committed partner for a...

Interim reportBNG Bank 2020

CONTENTS 2

Contents

1 Profile 3

2 Developments first half of 2020 7

3 Notes to the financial results for the first half of 2020 14

4 Consolidated interim financial statements 21

5 Review report 65

PROFILE 3

Profile

PROFILE MISSION AND STRATEGY 4

Mission and strategy

MissionBNG Bank is a committed partner for a more sustainable world. We enable the public sectorto achieve socially relevant objectives.

Strategy– BNG Bank provides financing for all maturities while keeping prices to a minimum.– By providing financial solutions, payment services and expertise, BNG Bank enables

clients to achieve their social objectives.– BNG Bank builds lasting relationships with stakeholders and responds proactively to their

requirements.– BNG Bank’s services are always available, irrespective of the situation on the financial

markets.

Core valuesBNG Bank’s core values are sustainable, reliable and professional:– sustainable is interpreted by BNG Bank as simultaneously serving economic,

environmental and social interests. This notion is inextricably linked to BNG Bank’smission;

– In the light of its public role, reliable means that BNG Bank is a safe bank due to theshareholding of Dutch public authorities and largely solvency-free lending, which is visibleto and distinctive for stakeholders; and

– professional means that BNG Bank continuously develops its services, staff andinformation provision.

Strategic objectivesBNG Bank is a relevant player in the funding of Dutch local authorities as well as in thehousing, healthcare, education, energy, environment, mobility and networks sectors.BNG Bank aims to meet more than half of the long-term credit demand from these sectors.The market share indicates the extent to which BNG Bankachieves this. BNG Bank aims to achieve a reasonablereturn, rather than maximise profit. Through dividends,this return accrues to the public authority shareholders. BNG Bank is a committed partner for a

more sustainable world. We enable the

public sector to achieve socially relevant

objectives.

PROFILE MISSION AND STRATEGY 5

ConditionsThe combination of the lowest possible lending rates and a reasonable return forshareholders is feasible because two conditions are met: an excellent risk profile and anefficient organisation.

Sustainable Development GoalsThe 17 Sustainable Development Goals (SDGs) will be important agenda items for thegovernment and the business community until 2030. These SDGs are aimed at ensuringpeace and prosperity for people and the world, now and in the future, and were endorsedin 2015 by all Member States of the United Nations. BNG Bank contributes to the SDGs aswell, and they guide the bank’s actions in both the short and the long term. BNG Bank focuseson the SDGs that are closest to the services it provides.

PROFILE BUSINESS MODEL 6

Business model

BNG Bank acts as an intermediary between the international money and capital markets andthe Dutch public sector. BNG Bank has been providing financing to the public sector since1914, at competitive terms and conditions and for all maturities, irrespective of the situationon the financial markets. The majority of the loans provided (more than 90%) are loans togovernment bodies that are guaranteed by government bodies. These loans are not subjectto solvency requirements and have a risk weighting of 0%. BNG Bank also takes care ofpayment transactions for clients.

BNG Bank is seen as a safe bank thanks to the shareholding of Dutch public authorities andlargely solvency-free lending. BNG Bank has the highest external credit ratings(Moody’s: Aaa, FitchRatings: AAA, S&P Global: AAA). BNG Bank consequently has a strongfunding position on the international money and capital markets. Short- and long-termfunding in various currencies can be raised at low prices. BNG Bank is one of the largest bondissuers in the Netherlands and can offer low rates to clients.

DEVELOPMENTS FIRST HALF OF 2020 7

Developments first half of2020

DEVELOPMENTS FIRST HALF OF 2020 KEY EVENTS 8

Key events

January 2020 Sustainability of sports facilities

Sports associations are able to apply for a loan from the BNG Sustainability Fund to make their

accommodation more sustainable. Thanks to a guarantee underwritten by Stichting

Waarborgfonds voor de Sport, it is possible to provide these loans at an attractive rate of

interest. This expansion of the BNG Sustainability Fund is part of the ‘Sports Sustainability

Roadmap’, which is supported by, for example, the Ministry of Health, Welfare and Sport,

NOC*NSF and the Association of Sports and Municipalities.

March 2020 COVID-19 pandemic

The COVID-19 pandemic has far-reaching social consequences, also for clients of BNG Bank.

BNG Bank is therefore committed to helping clients through this difficult period and ensuring

continuity of service. The bank has sufficient access to the capital market to raise funding and

has sufficient liquidity to provide clients with finance. BNG Bank also participates in the Task

Force Corona of the Netherlands Bankers’ Association, with the aim of supporting clients as

much as possible during this crisis period.

Promoting sustainable capital markets

BNG Bank and Government Pension Investment Fund (GPIF) from Japan, the world’s largest

pension fund, will work together to promote sustainable capital markets. BNG Bank’s

sustainability bonds are issued in line with the international Sustainability Bond Guidelines,

which are administered by the International Capital Market Association (ICMA). These bonds

offer GPIF asset managers the opportunity to contribute to a sustainable society.

April 2020 Dividend payment for 2019 postponed

When its annual figures for 2019 were published, BNG Bank proposed to distribute a dividend

to shareholders. However, the ECB has expressly recommended either to suspend the

payment of the dividend until at least 1 October 2020 or to cancel the 2019 dividend payment

altogether. The background to this is the significant impact that the COVID-19 pandemic is

having on the economy and the role that is foreseen for banks to mitigate the effects as much

as possible.The Supervisory Board and Executive Board has decided to postpone payment of

the dividend for 2019 by BNG Bank until at least 1 October 2020. In July 2020 the ECB

recommended to postpone the 2019 dividend payment until after 31 December 2020. The

Supervisory Board and the Executive Board decided to follow the recommendation and to

postpone the dividend payment until after December 31, 2020.

DEVELOPMENTS FIRST HALF OF 2020 KEY EVENTS 9

Jan van Rutte and Johan Conijn reappointed as Supervisory Board members

The General Meeting of Shareholders reappointed Jan van Rutte and Johan Conijn as

members of the Supervisory Board for a second term of four years on the recommendation of

the Supervisory Board.

Working together on the continued development of the Netherlands

More than 30 parties, including BNG Bank, have indicated in a joint statement that they will

make efforts and take responsibility to prevent possible negative consequences of the

COVID-19 pandemic and to safeguard the continuity of construction output and employment

as much as possible. The parties are working together to meet the high demand for housing

and to accelerate the task of making the existing premises from the Climate Agreement more

sustainable.

June 2020 BNG Bank supports Dutch companies’ sustainability statement

Nearly 250 companies, including BNG Bank, have signed the statement entitled ‘Dutch

businesses endorse sustainability in COVID-19 recovery’, in which they advocate taking

sustainability as the cornerstone for COVID-19 recovery plans. This statement was drawn up

on the initiative of the Dutch Sustainable Growth Coalition (DSGC), which brings together eight

Dutch multinationals. The DSGC strives for sustainable growth by combining economic gains

with social developments and contributing to the SDGs.

DEVELOPMENTS FIRST HALF OF 2020 IMPACT OF COVID-19 PANDEMIC 10

Impact of COVID-19 pandemic

The COVID-19 pandemic has far-reaching financial and social consequences, both for clientsof BNG Bank and for the bank itself. The global recession is causing a chain reaction ofdevelopments, leading to a drop in demand and reduced production, with a sharpcontraction of the global economy in 2020 as a consequence. A gradual economic recoveryis expected in 2021, but activity in several sectors will remain at a lower level for a long timeto come. A full economic recovery can only be expected after a vaccine has becomesufficiently available.

Impact on clientsThe COVID-19 pandemic has a major financial and social impact on the bank’s clients. OfBNG Bank’s client sectors, healthcare institutions and municipalities in particular play animportant role in combating the virus and implementing the measures taken by thegovernment. They are suffering severe financial consequences from this. BNG Bank hasaccess to sufficient liquidity to provide loans and does what is possible to help its clients. Inthe NVB context, BNG Bank participates in initiatives to help clients, for example by deferringrepayments of loans up to EUR 2.5 million in order to provide extra financial relief.

Impact on financial marketsDue to the COVID-19 pandemic, prices for borrowing and for hedging interest rate risks onthe financial markets are highly volatile. Although BNG Bank has always had good access tothe capital market since the beginning of the crisis, the price that had to be paid for long-termfinancing was higher than before the crisis. As a result of this, BNG Bank was forced to raiseits lending rates. BNG Bank lowered the rates again as soon as this was possible.

Impact on employeesThe COVID-19 pandemic is also having a far-reaching impact on the bank’s organisation andemployees. The Calamity Management Team (CBT), consisting of those responsible for HR,Security, IT and Facility Services, among others, met for the first time at the beginning ofMarch and subsequently held frequent consultations onappropriate measures. Working from home and digitalmeetings are encouraged. If it is not possible to workfrom home, employees of critical departments will bedispersed throughout The Hague or work at the speciallyequipped location in Zoetermeer.

The COVID-19 pandemic has far-

reaching financial and social

consequences, both for clients, and for

the bank itself.

DEVELOPMENTS FIRST HALF OF 2020 IMPACT OF COVID-19 PANDEMIC 11

Employees are supported and kept involved by the bank and by one another. Every week, avideo chat is held between the Executive Board and employees, and teams hold virtual startsto the day and the week. BNG Bank also facilitates working from home by making digital toolsavailable, possibilities for improved home workspace design and providing advice onworking from home.

Impact on financial resultThe COVID-19 pandemic is having a negative impact on BNG Bank’s financial result. Thefinancial result depends on many factors, such as the development of interest rates, creditand liquidity spreads, and now also the further course of the COVID-19 pandemic, whichmeans that it is not possible to make a pronouncement about the development of the 2020net profit. Given its strong capitalisation and excellent risk profile, the bank does not expectthe COVID-19 pandemic to pose a threat to continuity.

Payment of dividend for 2019Following its advice to postpone the 2019 dividend payment until 1 October 2020, in July2020 the ECB recommended European banks, including BNG Bank, to postpone the 2019dividend payment until after 31 December 2020. This is because of the role envisaged forbanks to mitigate, as far as possible, the negative effects on clients and on the economy dueto the COVID-19 pandemic. In response to questions from BNG Bank, the regulator hasinformed BNG Bank that the recommendation to defer the dividend payment is of atemporary nature. Against this background, the Supervisory Board and the Executive Boarddecided to follow the recommendation.

DEVELOPMENTS FIRST HALF OF 2020 COMMITTED PARTNER FOR A MORE SUSTAINABLE

WORLD12

Committed partner for a more sustainable world

Commitment of financial sector to climate agreementDespite the COVID-19 pandemic, the financial sector’s commitment to the government’sclimate targets remains undiminished. To that end, BNG Bank has joined the PCAF, thePartnership for Carbon Accounting Financials. According to the PCAF methodology, directand indirect emissions of the client are attributed to the bank on the basis of a set ofoverarching valuation rules. This methodology is used by a large majority of Dutch banks anda growing number of foreign banks. The results of the first impact measurement of the loanportfolio became available at the end of 2019 (see 2019 Annual Report). The calculation wascarried out by the University of Tilburg Telos Institute. BNG Bank will also report on theCO2 impact of lending for the 2020 financial year. No later than in 2022, BNG Bank will publishan action plan for its contribution to the reduction of CO2 emissions.

Own operationsIn its operations, BNG Bank also aims to operate on a climate-neutral basis, use materials andenergy as efficiently as possible and reduce its own CO2 footprint. In order to monitorprogress, BNG Bank annually reports the CO2 emissions of its own operations. Sustainabilityis taken into account in decision-making on subjects such as housing, procurement, ICT andtravel policy. BNG Bank uses green energy for its electricity supply and part of the CO2

emissions are offset. In the coming period, BNG Bank will also continue to pay attention tothe impact of climate change on its own business operations and measures will be takenwhere necessary.

By signing the Climate Agreement,

BNG Bank commits itself to contributing to

the fight against climate change.

DEVELOPMENTS FIRST HALF OF 2020 OTHER BNG BANK DEVELOPMENTS 13

Other BNG Bank developments

Credit controlBNG Bank has a qualitatively strong loan portfolio and the percentage of bad debts in relationto the total loan portfolio is very low. For the 2019 financial year, however, BNG Bank has hadto make a provision that is significant in historical terms. Credit losses of this magnitude areexceptional at BNG Bank. As a result, an investigation into the quality of the lending and creditmanagement process was conducted at the beginning of this year. This investigation showedthat there are no items of this kind in the bank’s loan portfolio. However, a number of areasfor improvement did emerge, directed towards improving insight into the bank’s clients anddetecting any adverse developments at an early stage. In line with European regulations,BNG Bank will look more explicitly and in a more uniform manner at the creditworthiness ofall its clients. Internal processes will be reviewed and aligned with market best practices.

NOTES TO THE FINANCIAL RESULTS

FOR THE FIRST HALF OF 202014

Notes to the financialresults for the first half of2020





Notes to the financial resultsfor the first half of 2020

The net profit of BNG Bank for the first half of 2020 amounts to EUR 100 million. The 21%decrease compared with the first half of 2019 is mainly due to the impact of the COVID-19pandemic outbreak in March 2020. Nevertheless, the bank looks back positively on thefinancial results in the first half of the year given the severity of the COVID-19 pandemic. Onbalance, due to the outbreak, the result on financial transactions was negatively affected byrevaluations of financial instruments as a result of the higher credit and liquidity riskpremiums. In addition, the bank had to increase the provision for expected credit losses asa result of the negative economic outlook.

The COVID-19 pandemic has had a major impact on the healthcare sector. Because thegovernment and health insurers have set up a safety net for the healthcare sector, theconsequences for BNG Bank are limited for the time being. The demand for credit,particularly from municipalities, was higher than expected, partly due to the financialconsequences of the COVID-19 pandemic. In the first four months, the volume of new long-term loans exceeded EUR 1 billion per month. The sale of Eneco shares by local authoritiesin the last two months of the first half of the year had a negative effect on the bank’s lending,partly due to the use of mutual borrowing. This period also saw a sharp decline in short-termlending to municipalities. The COVID-19 pandemic had no noticeable consequences for thedemand for credit from housing associations. New long-term loans amounted toEUR 5.4 billion in the reporting period, a decrease of EUR 0.8 billion compared with the firsthalf of 2019. Relative to year-end 2019, the long-term loan portfolio rose by EUR 1.2 billionto EUR 85.4 billion.

BNG Bank raised a total of EUR 9.8 billion in long-term funding through bond issues in thefirst half of the year. In terms of funding, the first half of the year was a turbulent period. Inthe first two months, the situation on the financial markets was similar to last year with ampleliquidity at very low prices. During this period, BNG Bank raised a total of EUR 3.4 billion oflong term funding of which EUR 2 billion in one transaction with a maturity of 10 years.However, the situation rapidly deteriorated in March and the market virtually closed duringa couple of weeks. Afterwards the market gradually re-opened, initially with sharply increasedcredit en liquidity spreads. At the end of March, the bank placed a EUR 1.5 billion, 5-yearbenchmark issue. In the second quarter, the bank’s credit spread gradually decreased again.During this period, EUR 4.9 billion was raised through long-term bond issues, including twoUSD benchmark issues with maturities of 3 and 10 years. BNG Bank also decided toparticipate in the ECB’s third ‘Targeted Longer-Term Refinancing Operation’ (TLTRO) because





of the very favourable terms and conditions. The purpose of this TLTRO is to stimulate thereal economy by providing liquidity at very low rates.

At EUR 225 million, BNG Bank’s interest result was substantially higher than forecast andhigher than the interest result for the same period in 2019, despite the pressure on the interestresult due to persistently low interest rates. The decision to invest the bank’s internal fundsfor longer had a positive impact. The increase of the long-term loan portfolio also contributedto the increase of the interest result. The sometimes very attractive short-term funding rateshave a positive effect on the margin on short-term exposures. Restructuring of clientportfolios and early repayments of long-term loans also resulted in an above-averagecontribution to interest income of EUR 7 million.

On balance, the result on financial transactions was EUR 14 million negative. The decreaseof EUR 35 million in relation to the comparable period in 2019 was mainly caused by higherpremiums for credit and liquidity risks on interest-bearing securities and loans as a result ofthe outbreak of the COVID-19 pandemic. On balance, the effects on the revaluation offinancial assets at fair value through the income statement amounted to EUR 36 millionnegative. As a result of the further decline in long-term interest rates, the value of the creditcomponent of customer swaps decreased by almost EUR 7 million. Realised results were onbalance EUR 10 million positive, partly due to the sale of interest-bearing securities from thebank’s liquidity portfolio.

The consolidated operating expenses increased by EUR 6 million to EUR 44 million comparedwith the same period in 2019. Particularly the costs of IT and hiring external support increased,in part due to the need to facilitate workplaces at home and invest in new systems in responseto the COVID-19 pandemic. Advisory fees also increased as a result of the activities relatedto the incidental large credit loss in 2019. BNG Bank’s contribution to the EuropeanResolution Fund in 2020 has been set, as expected, at nearly EUR 8 million and was paid inJune 2020.

The deteriorated economic outlook following the outbreak of the COVID-19 pandemic ledto an increase of the bank’s total expected credit losses of EUR 27 million to EUR 232 millionin the first half of 2020. Compared with the underlying exposure of around EUR 145 billion,the total expected credit losses remain low, reflecting the high creditworthiness of the bank’sexposures.

With a total tax charge of EUR 48 million, the effective tax rate for the first half of the year wasalmost 32%. The thin cap rule came into effect in 2020. As a result, part of the bank’s interestexpenses is not deductible to the extent that the bank’s leverage ratio (LR) at the end of theprevious year is lower than 8%. As the bank’s leverage ratio at the end of 2019 was 3.6%, theadditional tax charge in the first half of 2020 amounts to approximately EUR 11 million.

Compared with year-end 2019, the balance sheet total increased by EUR 17.3 billion toEUR 167.0 billion, mainly as a result of the fall in long-term interest rates and the bank’sdecision to maintain higher liquidity buffers in this period of crisis. Because of this, the Cashand cash equivalents item has increased by EUR 6.4 billion. The Loans and advances itemincreased by approximately EUR 0.4 billion, due to the growth in the long-term loan portfolio.





The further decrease in long-term interest rates is reflected in the increase of the balancesheet items derivatives, cash collateral and value adjustments on loans in portfolio hedgeaccounting.

In the reporting period, BNG Bank’s equity remained virtually unchanged at EUR 4.9 billion.The net profit largely compensates for the decrease in total unrealised reserves. Therisk-weighted solvency ratios decreased due to an increase of total risk-weighted assets. Thebank’s risk weighted exposure has increased due to the growth of the loan portfolio and thefall in interest rates. BNG Bank’s Common Equity Tier 1 ratio and Tier 1 ratio were 31% and36% respectively at the end of June 2020. Due to the increase of the balance sheet total, thebank’s leverage ratio decreased by 0.4 percentage points to 3.2% compared with year-end2019.



OUTLOOK 18

Outlook

Due to the current COVID-19 pandemic, the volatility in the financial markets is expected toremain particularly high this year. As a consequence, the bank does not consider it wise tomake a statement on the expected results for 2020. Please note that reliable estimates offuture market value adjustments or additional impairments are difficult by definition.

Nevertheless, due in part to the low interest rates, BNG Bank expects to exceed the annualtarget for new long-term loans of EUR 10 billion. As a consequence of the far-reaching socialand financial consequences of the COVID-19 pandemic, clients remain uncertain. BNG Bankwill continue to do everything possible to support its clients.

Partly as a result of the increase of the long-term loan portfolio, BNG Bank has decided toincrease its long term capital market funding target by EUR 1 billion to EUR 16 billion in 2020.Among others, two new Socially Responsible Investing bonds (SRI bonds) are expected tobe issued in the second half of 2020.

The introduction of new reference rates in accordance with the European BenchmarksRegulation (BMR) is in full swing. Reference rates must be representative of the relevantmarket and based on concluded transactions. The ECB benchmark working group hasintroduced €STR (Euro Short Term Rate) as the alternative to EONIA. On 27 July 2020, thecentral clearing parties LCH and Eurex switched from EONIA to €STR for the valuation ofderivatives. As a result the derivatives in question are on balance worth less to BNG Bank. Tocompensate this effect, the bank received a one-off payment from LCH and Eurex. A similarsettlement with the other financial counterparties is expected to be determined in the comingmonths. BNG Bank aim at processing those transactions in such a way that the incomestatement will not be impacted.

BNG Bank’s consolidated operating expenses will increase in the second half of the year.Operating expenses for the whole of 2020 are expected to amount to approximatelyEUR 93 million. The costs of hiring permanent and external staff will increase in the comingquarters as a result of the gradual filling of staff positions and the external support neededto improve the credit process. The costs for IT are increasing as a result of extra costs forsetting up or extending IT applications and for the support in setting up home workspaces.The contribution to the statutory bank levy in 2020 amounts to EUR 34 million and will bepaid in October.



OUTLOOK 19

Based on the current situation, the interest result for 2020 should range betweenEUR 460 million and EUR 500 million, which is higher than what was expected at the end of2019. This is explained by the higher interest result in the first half of the year, the increaseof the long-term loan portfolio, the persistently favourable rates for short-term funding andthe favourable terms and conditions of the ECB’s TLTRO support funding.



DECLARATION OF RESPONSIBILITY 20

Declaration of responsibility

In the opinion of the Executive Board, the Interim Report provides a true and fair view of theassets, liabilities, the financial position and the results of BNG Bank and the subsidiariesincluded in the consolidation. The Interim Report provides a true and fair view of the positionon the balance sheet date, the performance during the first half year and the expecteddevelopments of BNG Bank and its consolidated subsidiaries, whose figures have beenincluded in the consolidated Interim Report. The Interim Report does not contain all theinformation required for full financial statements and should therefore be read in combinationwith the 2019 Financial Statements.

The Hague, 4 September 2020

Executive Board

Gita SaldenChair

Olivier LabeCFO

John ReichardtCRO

CONSOLIDATED INTERIM FINANCIAL

STATEMENTS21

Consolidated interimfinancial statements


STATEMENTS22

An unqualified audit opinion has been issued for the figures as at 31 December 2019 andfor the 2019 financial year as a whole. An unqualified review report has been issued for thefigures as at 30 June 2020, as well for the first half of 2020 and 2019 respectively.


STATEMENTS23

Consolidated balance sheet 30/6/2020 31/12/2019Amounts in millions of euros NOTE

Assets

Cash and balances held with central banks 7,695 1,272

Amounts due from banks 59 66

Cash collateral posted 18,861 14,643

Financial assets at fair value through the income statement 1,516 1,764

Derivatives 10,708 10,004

Financial assets at fair value through other comprehensive income 10,213 9,222

Interest-bearing securities at amortised cost 8,064 7,764

Loans and advances at amortised cost 88,681 88,279

Value adjustments on loans in portfolio hedge accounting 20,950 16,462

Associates and joint ventures 36 35

Property and equipment 17 18

Current tax assets 58 30

Other assets 117 130

Total assets 166,975 149,689

Liabilities

Amounts due to banks 9,789 1,933

Cash collateral received 1,279 1,137

Financial liabilities at fair value through the income statement 691 674

Derivatives 26,724 22,651

Debt securities 1 117,472 112,661

Funds entrusted 5,890 5,575

Subordinated debts 33 33

Deferred tax liabilities 48 78

Other liabilities 193 60

Total liabilities 162,119 144,802

Equity

Share capital 139 139

Share premium reserve 6 6

Retained earnings 3,705 3,567

Revaluation reserve 60 84

Cash flow hedge reserve 15 13

Own credit adjustment 10 8

Cost of hedging reserve 88 174

Net profit 100 163

Equity attributable to shareholders 4,123 4,154

Hybrid capital 733 733

Total equity 4,856 4,887

Total liabilities and equity 166,975 149,689


STATEMENTS24

Consolidated income statement first half of 2020 first half of 2019Amounts in millions of euros NOTE

– Interest revenue calculated using the effective interest method 2,302 2,440

– Other interest revenue 232 331

Total interest revenue 2,534 2,771

– Interest expenses calculated using the effective interest method 2,263 2,524

– Other interest expenses 46 47

Total interest expenses 2,309 2,571

Interest result 2 225 200

– Commission income 14 16

– Commission expenses 2 1

Commission result 12 15

Result on financial transactions 3 –14 21

Results from associates and joint ventures 3 0

Other results 1 1

Total income 227 237

Staff costs 21 20

Other administrative expenses 21 16

Depreciation 2 2

Total operating expenses 44 38

Net impairment losses on financial assets 4 27 20

Net impairment losses on associates and joint ventures 0 1

Contribution to resolution fund 8 8

Total other expenses 35 29

Profit before tax 148 170

Income tax expense 48 42

Net profit 100 128

– of which attributable to the holders of hybrid capital 25 22

– of which attributable to shareholders 75 106


STATEMENTS25

Consolidated statement of comprehensive income first half of 2020 first half of 2019Amounts in millions of euros. All figures in the statement are after taxation.

Net profit 100 128

Recyclable results recognised directly in equity

Changes in cash flow hedge reserve:

– Unrealised value changes 2 3

2 3

Changes in cost of hedging reserve:

– Unrealised value changes –86 –97

– Realised value changes transferred to the income statement 0 -

–86 –97

Changes in the revaluation reserve for financial assets at fair value

through other comprehensive income:

– Unrealised value changes –19 8

– Realised value changes transferred to the income statement –5 –9

–24 –1

Total recyclable results –108 –95

Non-recyclable results recognised directly in equity:

– Change in fair value attributable to change in credit risk of financial

liabilities designated at FVTPL 2 0

Total non-recyclable results 2 0

Results recognised directly in equity –106 –95

Total –6 33

– of which attributable to the holders of hybrid capital 0 22

– of which attributable to shareholders –6 11


STATEMENTS

CONSOLIDATED CASH FLOW STATEMENT 26

Consolidated cash flowstatement

first half of 2020 first half of 2019

Consolidated cash flow statementAmounts in millions of euros

Cash flow from operating activities

Profit before tax 148 170

Adjusted for:

– Depreciation 2 2

– Impairments 28 22

– Unrealised results through the income statement 24 –11

Changes in operating assets and liabilities:

– Changes in Amounts due from and due to banks (not due on demand) –44 382

– Changes in Cash collateral posted and received –4,078 –2,992

– Changes in Loans and advances –301 –749

– Changes in Funds entrusted 301 2,136

– Changes in Derivatives –85 151

– Corporate income tax paid –77 –133

– Other changes from operating activities –118 –153

Net cash flow from operating activities –4,200 –1,175

Cash flow from investing activities

Investments and acquisitions pertaining to:

– Financial assets at fair value through the income statement –1 –1

– Financial assets at fair value through other comprehensive income –2,723 –897

– Interest-bearing securities at amortised cost –1,668 –896

– Investments in associates and joint ventures - -

– Property and equipment –1 –1

Disposals and redemptions pertaining to:

– Financial assets at fair value through the income statement 285 16

– Financial assets at fair value through other comprehensive income 1,755 1,339

– Interest-bearing securities at amortised cost 1,459 1,066

– Investments in associates and joint ventures - 1

– Property and equipment - -

Net cash flow from investing activities –894 627


STATEMENTS

CONSOLIDATED CASH FLOW STATEMENT 27

first half of 2020 first half of 2019

Cash flow from financing activities

Amounts received on account of:

– Central bank financing (TLTRO) 8,000 -

– Financial liabilities at fair value through the income statement 6 6

– Debt securities 97,302 224,464

Amounts paid on account of:

– Financial liabilities at fair value through the income statement –16 –67

– Debt securities –93,748 –213,591

– Subordinated debt 0 0

– Dividend distribution on hybrid capital –25 –25

– Dividend distribution to shareholders - –159

Net cash flow from financing activities 11,519 10,628

Net change in cash and cash equivalents 6,425 10,080

Cash and cash equivalents as at 1 January 1,276 1,591

Cash and cash equivalents as at 30 June 7,701 11,671

Cash and cash equivalents as at 30 June:

– Cash and balances held with central banks 7,695 11,670

– Cash equivalents in the Amount due from banks item 7 3

– Cash equivalents in the Amount due to banks item –1 –2

7,701 11,671

Interest cash flow from operating activities

Interest income received 2,957 2,902

Interest expenses paid –2,813 –2,773

144 129


STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN

EQUITY28

Consolidated statement ofchanges in equity

FIRST HALF OF 2020Consolidated statementof changes in equity

SHARE

CAPITAL

SHARE

PREMIUM

RESERVE

REVALU-

ATION

RESERVE

CASH

FLOW

HEDGE

RESERVE

OWN

CREDIT

ADJUST-

MENT

COST OF

HEDGING

RESERVE

RE-

TAINED

EARNINGS

UN-

APPRO--

PRIATED

PROFIT

EQUITY

ATTRIBU-

TABLE TO

SHARE-

HOLDERS

HYBRID

CAPITAL TOTAL

Amounts in millions of euros. All

figures in the statement are after

taxation.

Balance as at 01/01/2020 139 6 84 13 8 174 3,567 163 4,154 733 4,887

Net profit - - - - - - - 100 100 - 100

Movement in OCA - - - - 2 - - - 2 - 2

Movement in Cost of hedging - - - - - –86 - - –86 - –86

Unrealised results - - –24 2 - - - - –22 - –22

Total comprehensive income - - –24 2 2 –86 - 100 –6 - –6

Dividend distribution to the bank’s

shareholders - - - - - - - - - - -

Dividend distribution to holders of

hybrid capital - - - - - - –25 - –25 - –25

Appropriation from previous year’s

profit - - - - - - 163 –163 - - -

Balance as at 30/06/2020 139 6 60 15 10 88 3,705 100 4,123 733 4,856


STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN

EQUITY29

FIRST HALF OF 2019Consolidated statementof changes in equity

SHARE

CAPITAL

SHARE

PREMIUM

RESERVE

REVALU-

ATION

RESERVE

CASH

FLOW

HEDGE

RESERVE

OWN

CREDIT

ADJUST-

MENT

COST OF

HEDGING

RESERVE

RE-

TAINED

EARNINGS

UN-

APPRO--

PRIATED

PROFIT

EQUITY

ATTRIBU-

TABLE TO

SHARE-

HOLDERS

HYBRID

CAPITAL TOTAL

Amounts in millions of euros. All

figures in the statement are after

taxation.

Balance as at 01/01/2019 139 6 125 10 9 222 3,410 337 4,258 733 4,991

Net profit - - - - - - - 128 128 - 128

Movement in OCA - - - - - - - - 0 - 0

Movement in Cost of hedging - - - - - –97 - - –97 - –97

Unrealised results - - –1 3 - - - - 2 - 2

Total comprehensive income - - –1 3 - –97 - 128 33 - 33

Dividend distribution to the bank’s

shareholders - - - - - - –159 - –159 - –159

Dividend distribution to holders of

hybrid capital - - - - - - –22 - –22 - –22

Appropriation from previous year’s

profit - - - - - - 337 –337 - - -

Balance as at 30/06/2019 139 6 124 13 9 125 3,566 128 4,110 733 4,843


STATEMENTS

ACCOUNTING PRINCIPLES FOR THE

CONSOLIDATED INTERIM FINANCIAL STATEMENTS30

Accounting principles for theconsolidated interimfinancial statements

General company informationThe consolidated Interim Report is prepared and issued for publication by the ExecutiveBoard on 4 September 2020. BNG Bank N.V. (hereafter 'BNG Bank') is a statutory two-tiercompany under Dutch law. Half of the bank’s share capital is held by the Dutch State and theother half by municipal authorities, provincial authorities and a district water board. BNGBank has its registered office at Koninginnegracht 2 in The Hague (listed under Chamber ofCommerce number 27008387) in the Netherlands and has no branch offices.

Applicable laws and regulationsThe consolidated Interim Report is prepared in accordance with IAS 34 Interim FinancialReporting, as adopted throughout the European Union. The Interim Report does not containall the information required for full financial statements and should therefore be read incombination with the 2019 Consolidated Financial Statements. In preparing thisconsolidated Interim Report, the same system was applied to significant estimates andmethods as that for the 2019 consolidated Financial Statements except for the adoption ofnew amended standards. Furthermore we have established whether COVID-19 pandemichas no further impact on estimates and methods for the consolidated Interim Report.

Critical accounting principles applied for valuation and the determination ofthe resultThe consolidated Interim Report is prepared on the basis of the going-concern principle.Most balance sheet items are valued at amortised cost. The balance sheet items Financialassets at fair value through the income statement (FVTPL), Financial assets at fair valuethrough other comprehensive income (FVOCI), Derivatives and Financial liabilities at fairvalue through the income statement (FVTPL) are measured at fair value. The balance sheetitem Associates and joint ventures is stated according to the equity method. The balancesheet item Property and equipment is stated at cost less accumulated depreciation. Incomeis recognised if it is likely that the economic benefits will accrue to BNG Bank and the incomecan be reliably determined. Expenses are allocated where possible to the period in whichthe services were provided or to the related income counterbalancing these expenses. Fora detailed description, please refer to the accounting principles for the individual balancesheet items.

Accounting principles for consolidationThe Interim Report of the parent company and its subsidiaries, which is used to prepare theconsolidated Interim Report, is drawn up on the same reporting date and based on the same


STATEMENTS



uniform principles. All intra-group transactions and balances, including income, expensesand dividends, have been fully eliminated in the consolidated Interim Report. The reportingperiods of subsidiaries included in the consolidation coincide with those of BNG Bank. Allamounts stated in the Interim Report are presented in millions of euros, unless statedotherwise. The euro is used as the functional and reporting currency of BNG Bank. Incomeis recognised if it is likely that the economic benefits will accrue to BNG Bank and the incomecan be reliably determined. Expenses are allocated where possible to the period in whichthe services were provided or to the related income counterbalancing these expenses.

This consolidated Interim Report comprises the interim figures of the parent company andall the subsidiaries over which BNG Bank has control. Control exists if BNG Bank is exposedas an investor to variable returns due to its involvement and can influence these returns byexercising power over the relevant activities of the investment. Group companies areconsolidated in full from the date control has been acquired until such time as control ceasesto exist. In determining whether BNG Bank has control over investment funds in which it holdsunits or shares, the financial interests held by BNG Bank as a participant are taken intoconsideration.

Impact of COVID-19 on Interim ReportDue to the world-wide outbreak of COVID-19 pandemic, the first half of 2020 was differentthan any other. The outbreak had an influence on everyone, also on BNG Bank, bothoperationally and financially. Depending on the duration of the COVID-19 pandemic andcontinued negative impact on economic activity, the company may experience furthernegative results, liquidity restraints and incur additional impairments on its assets in 2020.The exact impact on our activities in the remainder of 2020 and thereafter cannot bepredicted. Whilst uncertain, we do not believe, however, that the impact of COVID-19 viruswould have an material adverse effect on our financial condition or funding & liquidity. Werefer to the report of the executive board for the impact of COVID-19 pandemic on the bank'soperations.

Further details of the impact of COVID-19 pandemic on financial results and significantestimates and methods used is provided in the relevant notes.

Changes in presentation of comparative figuresAt the end of March 2020, we executed an in-dept review on the Letters of Credit after wegot an indication of an omission at that time. We concluded the previously disclosed datawas not complete, and as a result an additional amount of EUR 1.553 million, for fourtransactions entered into in 2012 (USD 506 million) and 2015 (USD 1.238 million), is currentlyadded to our off-balance sheet exposure. We concluded that there is limited impact to priorand current (interim) financial statements as a result of this omission, since the CET1-ratio andTier 1-ratio in current and prior years are not impacted, as well as any Balance Sheet orStatement of profit and loss line items of current and prior years.


STATEMENTS



The comparative figures of 'contingent liabilities' are changed in the following tables:– Breakdown of financial assets and off-balance sheet commitments into impairment stages– Forborne exposures– Off-balance

Applicable laws and regulationsThe consolidated Interim Report was prepared in accordance with the IFRS, as issued by theInternational Accounting Standards Board (IASB) and adopted throughout the EuropeanUnion. The consolidated interim figures of BNG Bank were prepared in accordance with theprinciples and calculation methods applied for the 2019 Financial Statements.

In general, BNG Bank does not apply new or amended standards and interpretations issuedby the IASB if they have not been adopted by the EU. BNG Bank has, in principle, also decidedagainst the early application of the amended standards and interpretations adopted by theEU, whose application is mandatory for the financial years after 1 January 2020. An exemptionhas been made for the amendments related to the Interest Benchmark Reform concerningphase 1. A further description is stated in the Financial Statements of 2019.

Application of the following new or amended standards, interpretations and improvementshave not led to significant adjustments in this 2020 consolidated Interim Report in respect ofvaluation, the determination of the result and the disclosures of the bank.

Applied accounting standards adopted by the EU effective on or after 1 January 2020– Amendments to IFRS 9, IAS 39 and IFRS 7: In September 2019, the IASB issued the Interest

Rate Benchmark Reform. The EU endorsed the amendment on 15 January 2020. Theseamendments modify specific hedge accounting requirements to allow hedge accountingto continue for affected hedges during the period of uncertainty before the hedged itemsor hedging instruments affected by the current interest rate benchmarks are amended asa result of the on-going interest rate benchmark reforms. The amendment is related tophase 1 of the Interest Rate Benchmark Reform. The amendment is effective for annualreporting periods beginning on or after 1 January 2020. BNG Bank has chosen to earlyapply the amendments to IFRS 9/IAS 39 for the reporting period ending 31 December2019.

– Improvements to IFRS Standards IFRS 3 'Business combinations' and IAS 1 'Presentationof Financial Statements' and IAS 8 'Accounting Policies, Changes in Accounting Estimatesand Errors'. This improves the understanding of the definitions 'business' and 'material'.The improvements have no impact on BNG Bank.

Accounting standards not adopted by the EU which are not yet appliedThere are no other standards that are not yet effective that would be expected to havematerial impact on the Bank in the current or future reporting periods and on foreseeabletransactions.

Segmented informationWhen deciding on the deployment of resources and performance measurement, BNG Bankdistinguishes between lending activities and area development activities. In themanagement and set-up of its lending operations, BNG Bank does not distinguish between


STATEMENTS



different segments or business units. The bank’s area development activities are not materialcompared with its lending activities. Therefore, no segmented information is included in thisInterim Report.

DividendThe proposed dividend of EUR 71 million for the 2019 financial year, following the GeneralMeeting of Shareholders held in the first half of 2020, is not yet paid. The ECB hasrecommended European banks to postpone the payment of this dividend until after31 December 2020. In response to questions from BNG Bank, the regulator has explicitlyinformed the bank that the recommendation to postpone the dividend payment is temporaryin nature. Against this background, the Supervisory Board and the Executive Board havedecided to follow the recommendation. The dividend of EUR 25 million to the holders of thehybrid capital is distributed in the first half of 2020. This distribution is not deductible fromcorporate income tax. BNG Bank has no plans to pay out an interim dividend on the resultfor the first half of 2020.


STATEMENTS

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL

STATEMENTS34

Notes to the consolidatedinterim financial statements

1 Debt securitiesThe debt securities item rose by EUR 4.8 billion in the first half of 2020. Mainly due to aEUR 2.9 billion increase in bond loans and a EUR 2.0 billion increase in short-term funding(in the form of Commercial Paper).

In addition, the total value adjustment for long-term debt securities involved in micro hedgeaccounting showed an increase of approximately EUR 1.8 billion. With regard to its long-termfunding activities, BNG Bank issued EUR 9.8 billion of long-term debt securities in the firsthalf of 2020 (first half of 2019: EUR 10.2 billion). The total redemption value of long-term debtsecurities amounted to EUR 8.1 billion in the reporting period (first half of 2019:EUR 9.7 billion).


STATEMENTS


STATEMENTS35

2 Interest result

FIRST HALF OF 2020 FIRST HALF OF 2019

Interest revenue

Interest revenue calculated by using the effective interest method:

– Financial assets at amortised cost 1,034 1,080

– Financial assets at fair value through other comprehensive

income 61 75

– Derivatives involved in hedge accounting 1,175 1,266

– Negative interest expenses on financial liabilities 32 19

2,302 2,440

Other interest revenue:

– Financial assets designated at fair value through the income

statement 18 21

– Financial assets mandatory at fair value through the income

statement 1 1

– Derivatives not involved in hedge accounting 213 309

232 331

Total interest revenue 2,534 2,771

Interest expenses

Interest expenses calculated by using the effective interest

method:

– Financial liabilities at amortised cost 1,038 1,258

– Derivatives involved in hedge accounting 1,166 1,212

– Negative interest expenses on financial assets 59 54

2,263 2,524

Other interest expenses

– Financial liabilities designated at fair value through the income

statement 15 15

– Derivatives not involved in hedge accounting 25 29

– Other 6 3

46 47

Total interest expenses 2,309 2,571

Total interest result 225 200


STATEMENTS


STATEMENTS36

3 Result on financial transactionsThe table below presents a breakdown of the result on financial transactions into realisedand unrealised market value changes.

FIRST HALF OF 2020 FIRST HALF OF 2019

Market value changes in financial assets at fair valuethrough the income statement resulting from changes incredit and liquidity spreads, consisting of:– Interest-bearing securities –23 31

– Structured loans –13 2

–36 33

Result on hedge accounting

– Portfolio fair value hedge accounting 7 –3

– Micro fair value hedge accounting 16 16

– Micro cash flow hedge accounting 3 0

26 13

Change in counterparty credit risk of derivatives (CVA/DVA) –7 –11

Realised sales and buy-out results 10 10

Other market value changes –7 –24

Total –14 21

The COVID-19 pandemic had a negative impact on the results on financial transactions dueto higher credit and liquidity spreads of several interest-bearing securities and loansrecorded under Financial assets at fair value through the income statement. Next to the onbalance positive results on the sales from the liquidity portfolio of the bank, the realised salesresults also includes the successful completion in February of a 'true sale and buyback' of amajor inflation-linked bond purchased in 2007 and the restructuring of related derivatives.The purpose of these transactions was to reduce income statement volatility and ensuresthat, from February 2020, this bond is valued at the amortised cost and together with therelated derivatives has been brought into hedge accounting. The completion of thesetransactions led to a realised result of EUR 3 million positive. Other market value changesinclude, among other things, unrealised market value changes of derivatives not involved inhedge accounting.


STATEMENTS


STATEMENTS37

4 Impairments on financial assets and off-balance sheet commitments

Breakdown of financial assets and off-balance sheet commitments intoimpairment stagesThe following tables provide a breakdown of the financial assets subject to impairment andoff-balance sheet commitments into the 3 impairment stages:

Stage 1: performing exposures without significant increase in credit risk (SICR) since initialrecognition.Stage 2: performing exposures with significant increase in credit risk since initial recognition(not credit-impaired).Stage 3: non-performing exposures (credit-impaired)

30/6/2020

GROSS CARRYING AMOUNT ALLOWANCE FOR CREDIT LOSS

CARRYING

AMOUNT PERFORMING

NON-

PERFORMING PERFORMING

NON-

PERFORMING

STAGE 1 STAGE 2 STAGE 3 STAGE 1 STAGE 2 STAGE 3

Financial assets subject to impairment

Cash and balances held with central banks 7,695 7,695 - - - - -

Amounts due from banks 59 59 - - 0 - -

Cash collateral posted 18,861 18,861 - - - - -

Financial assets at fair value through OCI1 10,213 10,153 60 - 0 –1 -

Interest-bearing securities at amortised cost 8,064 7,841 230 - –1 –6 -

Loans and advances at amortised cost2 88,681 85,567 2,926 407 –9 –29 –181

Total 133,573 130,176 3,216 407 –10 –36 –181

1 The allowance for credit loss for financial assets at FVOCI is included in OCI and not in the (net) carrying amount.

2 Gross carrying amount. The allowance for credit loss is also based on the value adjustments from hedge accounting.

30/6/2020

NOMINAL AMOUNT PROVISION

PERFORMING

NON-


NON-

PERFORMING


Off-balance sheet commitments

Contingent liabilities 1,646 1 - - - -

Revocable facilities 3,896 214 1 - - -

Irrevocable facilities 5,430 151 25 –2 –3 -

Total 10,972 366 26 –2 –3 -


STATEMENTS


STATEMENTS38

30/6/2019

GROSS CARRYING AMOUNT ALLOWANCE FOR CREDIT LOSS

CARRYING

AMOUNT PERFORMING

NON-


NON-

PERFORMING


Financial assets subject to impairment

Cash and balances held with central banks 11,670 11,670 - - - - -

Amounts due from banks 76 76 - - - - -

Cash collateral posted 15,273 15,273 - - - - -

Financial assets at fair value through OCI1 9,320 9,262 58 - - –1 -

Interest-bearing securities at amortised cost 7,271 7,196 80 - - –5 -

Loans and advances at amortised cost2 85,969 84,585 1,350 95 –4 –27 –30

Total 129,579 128,062 1,488 95 –4 –33 –30

1 The allowance for credit loss for financial assets at FVOCI is included in OCI and not in the (net) carrying amount.

2 Gross carrying amount. The allowance for credit loss is also based on the value adjustments from hedge accounting.

30/6/2019

NOMINAL AMOUNT PROVISION

PERFORMING

NON-


NON-

PERFORMING



Contingent liabilities 1,590 1 - - - -

Revocable facilities 4,000 36 - - - -

Irrevocable facilities 6,822 93 15 –1 –1 –3

Total 12,412 130 15 –1 –1 –3

Non-performing exposures totalled EUR 433 million as at 30 June 2020 (year-end 2019:EUR 321 million). The share of non-performing exposures in the total portfolio is 0.3% (year-end 2019: 0.2%) and concerns 14 debtors (year-end 2019: 10 debtors). The increase in non-performing exposure is almost entirely caused by one debtor that has shifted form stage 2to stage 3 on the basis of unlikeliness to pay. So far, the banks received all obligations of thisdebtor in full. BNG Bank has received government guarantees totalling EUR 43 million (year-end 2019: EUR 36 million) with respect to non-performing exposures. The following tableshows the development of non-performing exposures.


STATEMENTS


STATEMENTS39

FIRST HALF OF 2020 2019

Opening balance 321 57

Increase in existing non-performing exposures 1 -

Shift from performing to non-performing exposure 130 301

Shift from non-performing to performing exposure - –22

Repayments on and settlement of non-performing exposure –19 –15

Closing balance 433 321

Movements in allowances and provisions for expected credit losses

The following table shows the movemens in allowances for expected credit losses forfinancial assets and the provision for expected credit losses for off-balance sheetcommitments.

FIRST HALF OF 2020

OPENING

BALANCE

INCREASES DUE

TO

ORIGINATION

AND

ACQUISITION

DECREASE DUE

TO DERECOG-

NITION

REPAYMENTS

AND

DISPOSALS

CHANGES

DUE TO

CHANGE IN

CREDIT

RISK (NET)

DECREASE IN

ALLOWANCE

ACCOUNT DUE

TO WRITE-

OFFS

CLOSING

BALANCE

Allowances

Cash and balances held with central banks - - - - - -

Amounts due from banks 0 0 0 0 - 0

Financial assets at fair value through OCI 1 0 0 0 - 1

Interest-bearing securities at amortised cost 6 1 0 0 - 7

Loans and advances at amortised cost 193 3 –3 26 - 219

200 4 –3 26 - 227

Provision

Off-balance sheet commitments 5 1 –4 3 - 5


STATEMENTS


STATEMENTS40

FIRST HALF OF 2019

OPENING

BALANCE

INCREASES

DUE TO

ORIGINATION

AND

ACQUISITION

DECREASE

DUE TO

DERECOG-

NITION

REPAYMENTS

AND

DISPOSALS

CHANGES

DUE TO

CHANGE IN

CREDIT RISK

(NET)

DECREASE IN

ALLOWANCE

ACCOUNT

DUE TO

WRITE-OFFS

CLOSING

BALANCE

Allowances

Cash and balances held with central banks - - - - - -

Amounts due from banks 0 - 0 0 - 0

Financial assets at fair value through OCI 1 0 0 0 - 1

Interest-bearing securities at amortised cost 7 0 –2 0 - 5

Loans and advances at amortised cost 47 2 –2 19 –5 61

55 2 –4 19 –5 67

Provision

Off-balance sheet commitments 2 1 –1 3 - 5


STATEMENTS


STATEMENTS41

Modifications of contractual cash flowsThere have been no financial assets for which the contractual cash flows have been modifiedduring 1st half-year of 2020 while they had a loss allowance measured at an amount equalto lifetime expected credit loss (i.e. stage 2 or 3). No financial assets which were modified inprevious reporting periods while they had a loss allowance measured at an amount equal tolifetime expected credit loss (stage 2 or 3) have been moved back to stage 1 during 1st half-year of 2020.

Key inputs and assumptionsThe Expected Credit Loss (ECL) of a financial asset is measured on either a 12-month orlifetime basis depending on whether a significant increase in credit risk has occurred. Thetotal ECL is a discounted product of the Probability of Default (PD), Loss Given Default (LGD)and Exposure at Default (EAD).

Probability of defaultPDs are used as a key component in the determination of ECLs and SICR. BNG Bank hasdeveloped PD-models, largely based on expert judgements, for exposures for which noexternal rating is available. To ensure IFRS 9 compliance and so-called ‘point-in-time’ PDs,the bank developed overlay models that include forward-looking information (FLI). Forstaging purposes, credit ratings are used which are adjusted for forward-looking information.BNG Bank applies three internally developed scenarios based on economic forecasts whichare consistent with inputs to other relevant estimates within the financial statements. Theproposed macroeconomic forecasts are benchmarked with an external macroeconomicforecast to ensure the external validity of the scenarios. The scenarios are approved in theAsset and Liability Committee (ALCO). In doing so, BNG Bank ensures that the PDs arereasonable and supportable.

Loss given defaultBecause of its low default credit portfolio and the lack of historical internal LGD data, BNGBank is not able to create LGD models. Therefore, BNG Bank applies a basic flat LGDapproach, with four different LGD percentages for its entire exposure:– 0% for exposures granted to or guaranteed by (Dutch) central or regional governments;– 10% for government bonds issued by central or regional governments in the EU;– 35% for exposure without a guarantee of a central or regional government and senior

unsecured bonds; and– 75% for subordinated loans.

Exposure at defaultThe EAD for loans and for interest-bearing securities (excluding securitisations) is based oncontractual repayments owed by the obligor over a 12-month or lifetime period. Voluntaryrepayments or early redemptions are not taken into account, as these are historicallyinfrequent. For securitisations, the future contractual repayments are based on estimatedConstant Prepayment Rates which are derived from external sources. In case of committed(off-balance sheet) facilities, the maximum exposure is adjusted in order to reflect theexpected drawdown behaviour for either a 12-month or lifetime period (in accordance withthe impairment stage).


STATEMENTS


STATEMENTS42

Significant increase in credit riskBNG Bank applies the Point-in-Time PD, which is adjusted for forward-looking information,as an input parameter for the assessment of significant changes in credit risk sincerecognition. In addition, the bank uses forbearance measures as well as a 30-day past-dueperiod as backstop criteria to determine a significant increase in credit risk. On the otherhand, the bank also applies a low credit risk exemption for monitoring significant changes incredit risk since recognition. In this case, an impairment is measured using the 12-month ECL,without determining if a significant increase in credit risk has occurred. BNG Bank willconsider financial assets with an investment grade rating to be of ‘low credit risk’. For bonds,BNG Bank considers a BBB– or higher to be an investment grade. With regards to loans, thebank uses its internal counterparty credit rating to determine whether it is investment grade.Internal counterparty credit ratings are derived from a number of market sector specificinternal rating models, which have been externally validated.

BNG Bank applies an expert judgement approach when determining the stage 3 impairmentfigures. The approach is performed on an instrument level by the Special Managementdepartment.

Forward-looking macroeconomic informationHistoric analysis is performed to identify the key macroeconomic variables, which areprovided on a quarterly basis. Expert judgement is applied. The macroeconomic factorsapplied in determining the probability of default for nonsecuritisations are the nominal GrossDomestic Product (GDP), the unemployment rate, and the wage rate. For securitisations theapplied macroeconomic factors are the house price index, the long-term interest rate, anddebt.

BNG Bank's base case assumes a slight recovery from the third quarter of 2020 following thestrong economic downturn in the second quarter. Due to the great uncertainties about theconsequences of the COVID-19 pandemic, the bank has decided to increase the chance ofa downward scenario to 35%. The bank has not made so-called post-model adjustments tobring the results in line with economic expectations.

Non-securitisations

Macro economic variable HORIZON AS AT 30/06/2020 HORIZON AS AT 31/12/2019

Gross Domestic Product (GDP) for The Netherlands 3 years 3 years

Unemployment rate for The Netherlands 3 years 3 years

Wage growth rate 3 years 3 years

Scenario WEIGHTING AS AT 30/06/2020 WEIGHTING AS AT 31/12/2019

Base scenario 60% 70%

Upward scenario 5% 10%

Downward scenario 35% 20%


STATEMENTS


STATEMENTS43

Securitisations

Macro economic variable HORIZON AS AT 30/06/2020 HORIZON AS AT 31/12/2019

House price indices in the Euro area (17 countries) 3 years 3 years

Long-term interest rates in the Euro area (19 countries) 3 years 3 years

Debt (Credit to households and NPISHs) in the Euro area1 3 years 3 years

Scenario WEIGHTING AS AT 30/06/2020 WEIGHTING AS AT 31/12/2019

Base scenario 60% 65%

Upward scenario 5% 10%

Downward scenario 35% 25%

1 Non-profit institutions serving households

Non-performing exposuresBNG Bank defines a financial instrument as in default, which is fully aligned with its definitionof non-performing, when it meets one of the following criteria:– BNG Bank considers that the obligor is unlikely to pay its credit obligations to the bank;

and– The obligor is past due 90 days or more on any material credit obligation to the bank.

The bank employs the following indicators for ‘Unlikeliness to pay’:– The obligor’s source of income is considered insufficient to meet its payment obligations;– There are indications that future cash flows are under pressure;– The obligor’s debt ratio has increased significantly;– One or more covenants have been breached;– BNG Bank has called upon a guarantee or seized collateral;– Significant delayed payments to other creditors (recorded in a register);– There is a crisis in the obligor’s market sector, in which the obligor is considered to be a

weak party;– The obligor can no longer be active in its market sector because of its financial difficulties;– Another creditor has filed for the obligor’s bankruptcy.

Sensitivity analysis of credit loss allowancesIn order to measure the sensitivity of the credit loss allowances to identify changes in theinput factors, a different scenario is used to (re)calculate the size of the credit loss allowancesas at 30 June 2020.

In the scenario used (hereafter: scenario A), the credit rating of all individual exposuressubject to impairment are downgraded by 1 notch (e.g. from AAA to AA+). These (lower)credit ratings, as well as the accompanying PDs, are then applied in the staging assessmentand the calculation of the credit loss allowances. As a result, a portion of the exposuresmigrated from stage 1 to stage 2. The EADs and LGDs are unchanges compared with theactual impairment calculation.


STATEMENTS


STATEMENTS44

The following table shows the sensitivity of the total credit loss allowances in scenario A:

30/6/2020

ACTUAL BALANCE

SCENARIO A

(1 NOTCH DOWN)

Allowances

Cash and balances held with central banks - -


Financial assets at fair value through OCI 1 1

Interest-bearing securities at amortised cost 7 9

Loans and advances at amortised cost 219 249

227 259

Provision

Off-balance sheet commitments 5 10

31/12/2019

ACTUAL BALANCE

SCENARIO A

(1 NOTCH DOWN)

Allowances

Cash and balances held with central banks - -


Financial assets at fair value through OCI 1 1

Interest-bearing securities at amortised cost 6 6

Loans and advances at amortised cost 193 214

200 221

Provision

Off-balance sheet commitments 5 8

This outcome of scenario A shows that the bank's result has become more sensitive tonegative economic changes.


STATEMENTS


STATEMENTS45

5 Breakdown of financial instruments by category

30/6/2020

AMORTISED

COST

FAIR VALUE

THROUGH

PROFIT OR

LOSS

FAIR VALUE

THROUGH

OTHER

COMPRE-

HENSIVE

INCOME TOTAL

Cash and balances held with central banks 7,695 - - 7,695

Amounts due from banks 59 - - 59

Cash collateral posted 18,861 - - 18,861

Financial assets at fair value through the income statement - 1,516 - 1,516

Derivatives - 10,708 - 10,708

Financial assets at fair value through other comprehensive income - - 10,213 10,213

Interest-bearing securities at amortised cost 8,064 - - 8,064

Loans and advances at amortised cost 88,681 - - 88,681

Value adjustments on loans in portfolio hedge accounting 20,950 - - 20,950

Total assets 144,310 12,224 10,213 166,747

Amounts due to banks 9,789 - - 9,789

Cash collateral received 1,279 - - 1,279

Financial liabilities at fair value through the income statement - 692 - 692

Derivatives - 26,724 - 26,724

Debt securities 117,472 - - 117,472

Funds entrusted 5,890 - - 5,890

Subordinated debt 33 - - 33

Total liabilities 134,463 27,416 - 161,879


STATEMENTS


STATEMENTS46

31/12/2019

AMORTISED

COST

FAIR VALUE

THROUGH

PROFIT OR

LOSS

FAIR VALUE

THROUGH

OTHER

COMPRE-

HENSIVE

INCOME TOTAL


Amounts due from banks 66 - - 66

Cash collateral posted 14,643 - - 14,643

Financial assets at fair value through the income statement - 1,764 - 1,764

Derivatives - 10,004 - 10,004

Financial assets at fair value through other comprehensive income - - 9,222 9,222

Interest-bearing securities at amortised cost 7,764 - - 7,764

Loans and advances at amortised cost 88,279 - - 88,279

Value adjustments on loans in portfolio hedge accounting 16,462 - - 16,462

Total assets 128,486 11,768 9,222 149,476

Amounts due to banks 1,933 - - 1,933

Cash collateral received 1,137 - - 1,137


Derivatives - 22,651 - 22,651

Debt securities 112,661 - - 112,661

Funds entrusted 5,575 - - 5,575

Subordinated debt 33 - - 33

Total liabilities 121,339 23,325 - 144,664

6 Fair value of financial instrumentsThe fair value is the transfer price (not adjusted for transaction costs) which, regardless of theintention or capability, would be received if an asset was sold or the price which would bepaid if a liability was transferred in an orderly transaction between market participants at themeasurement date under the current market conditions. The assumption is that the valuationmust be viewed from the perspective of market parties, whereby only the specificcharacteristics and limitations of the financial instrument are taken into consideration.A distinction is made between three levels of fair value, with the nature of the input factorsand their significance for the total valuation being decisive for the correct classification in thehierarchy.

Fair value hierarchy– Level 1: valuation based on (unadjusted) quoted market prices of the instrument itself or,

if unavailable, of identical instruments, in an active market. A financial instrument isregarded as quoted in an active market if the quoted price is regularly available, and if


STATEMENTS


STATEMENTS47

these prices reflect current and regularly occurring arm’s length market transactions. Thequoted market prices for financial assets and liabilities are based on mid-market prices.

– Level 2: valuation based on a valuation technique using directly/indirectly observablemarket data other than quoted market prices as used at Level 1. This category includesinstruments with a valuation that uses quoted prices in an active market for comparableinstruments, quoted prices for identical or comparable instruments in markets deemedto be less than active or other valuation techniques whereby all significant input variablesare directly or indirectly observable from market data.

– Level 3: valuation based on valuation techniques that make significant use of input datathat are not publicly observable in the market. This category includes instruments with avaluation technique that uses input variables that are not based on observable marketdata and whereby the non-observable market data significantly influences the valuationof the instrument. This category also includes the instruments valued in accordance withthe quoted prices for comparable instruments whereby significant not publicly observablechanges or presumptions are necessary for expressing the differences between theinstruments.

Where possible, BNG Bank uses quoted market prices (Level 1) for determing pricing- andfunding curves. BNG Bank uses mid-market prices for valuation purposes. Using mid-marketprices is permitted if the market risk of the financial assets and liabilities is offset.

In many cases, the bank is reliant on theoretical valuations (Level 2) in respect of its debtors.In such cases, the fair value is determined based on valuation models and techniques thatare customarily used in the financial sector. These are mostly models based on net presentvalue calculations and option pricing models. The input for these models is based on director indirect objectively observable input data, such as market prices, forward pricing, market-based yield curves for discounting, correlations, volatilities, cross-currency basis spreads,counterparty creditworthiness and other factors, estimates and assumptions which marketparties would use to determine the price. The bank uses so-called spread curves to determinethe fair value of financial instruments that involve credit and liquidity risk and for which atheoretical valuation is required. These spread curves are constructed based on the relevantinterest rate curve and a spread for credit and liquidity risk. The credit risk spread isdependent on the creditworthiness of the debtor, taking into account the collateral received,guarantees and maturities. The liquidity risk spread depends on the degree of marketabilityof the instrument. The risk profiles of individual clients and financial instruments are assessedat least once per quarter. If necessary, the credit-risk spread will be adjusted.

In a limited number of cases, the valuation of the bank’s financial instruments is based to asignificant extent on input data and management estimates which are not publicly observablein the market (Level 3).

In determining the fair value of derivative transactions, a credit value adjustment (CVA) anda debit valuation adjustment (DVA) are applied to all derivative transactions with all clientsand financial counterparties with which the bank does not have an agreement for the dailyexchange of collateral. CVA and DVA are also applied to all derivative transactions with clientsor counterparties with which the bank has an agreement for the daily exchange of collateralbut where significant thresholds are applicable in determining the collateral amount.


STATEMENTS


STATEMENTS48

The bank applies a spread over the relevant swap curve to determine its own credit risk: the‘own credit adjustment (OCA)’. The OCA only relates to instruments included under Financialliabilities at fair value through the income statement. Insofar as financial instruments have thecharacter of a forward contract, official forward prices are used, including forward yield curvesand forward exchange rates. In the case of complex instruments, the constituent parts of theinstrument are measured separately on the basis of the above techniques and models. Thefair value of the entire instrument is determined as the sum of the fair values of its constituentparts. BNG Bank applies only recurring fair values, which are measured on an ongoing basisfor processing in the financial position at the end of each reporting period.

30/6/2020 31/12/2019

BALANCE

SHEET-VALUE FAIR VALUE

BALANCE

SHEET-VALUE FAIR VALUE

Cash and balances held with central banks 7,695 7,695 1,272 1,272

Amounts due from banks 59 59 66 66

Cash collateral posted 18,861 18,861 14,643 14,643

Financial assets at fair value through the income statement 1,516 1,516 1,764 1,764

Derivatives 10,708 10,708 10,004 10,004

Financial assets at fair value through other comprehensive income 10,213 10,213 9,222 9,222

Interest-bearing securities at amortised cost 8,064 8,104 7,764 7,897

Loans and advances at amortised cost 88,681 109,492 88,279 106,012

Total financial assets 145,797 166,648 133,014 150,880

Amounts due to banks 9,789 9,680 1,933 1,928

Cash collateral received 1,279 1,279 1,137 1,137

Financial liabilities at fair value through the income statement 691 691 674 674

Derivatives 26,724 26,724 22,651 22,651

Debt securities 117,472 117,782 112,661 113,466

Funds entrusted 5,890 6,062 5,575 5,759

Subordinated debt 33 45 33 45

Total financial liabilities 161,878 162,263 144,664 145,660

When effecting a transaction, the hierarchical classification of fair value is determined basedon the relevant characteristics of the valuation, with the nature of the input factors and theirsignificance for the total valuation being decisive for the classification. The classification takesplace based on the lowest input level that is significant for the fair value in the transaction asa whole. Significance is assessed by determining the influence of non-observable inputfactors on the outcome of the total valuation, with due regard for the range of possiblealternative assumptions concerning those non-observable input factors. Each quarter, thehierarchical classification of each transaction is assessed and adjusted where necessary.


STATEMENTS


STATEMENTS49

The table below provides an overview of the fair value hierarchy for transactions recognisedat fair value.

30/6/2020

LEVEL 1 LEVEL 2 LEVEL 3 TOTAL

Financial assets at fair value through the income statement 105 1,215 196 1,516

Derivatives - 10,706 2 10,708

Financial assets at fair value through other comprehensive income 10,072 141 - 10,213

Total financial assets 10,177 12,062 198 22,437


Derivatives - 26,723 1 26,724

Total financial liabilities - 27,414 1 27,415

31/12/2019


Financial assets at fair value through the income statement 102 1,221 441 1,764

Derivatives - 9,999 5 10,004

Financial assets at fair value through other comprehensive income 9,141 81 - 9,222

Total financial assets 9,243 11,301 446 20,990

Financial liabilities at fair value through the income statement 113 561 - 674

Derivatives - 22,647 4 22,651

Total financial liabilities 113 23,208 4 23,325


STATEMENTS


STATEMENTS50

Significant movements in fair value Level 3 items

FIRST HALF OF 2020

FINANCIAL ASSETS AT FAIR

VALUE THROUGH THE

INCOME STATEMENT

DERIVATIVES (STATED AS

ASSETS)


LIABILITIES)

Opening balance 441 5 4

Results through the income statement:

– Interest result 3 2 2

– Unrealised result on financial transactions –3 –4 –4

– Realised result on financial transactions –3 - -

–3 –2 –2

– Investments / Disposals –239 - -

– Cash flows –3 –1 –1

Closing balance 196 2 1

FIRST HALF OF 2019


VALUE THROUGH THE

INCOME STATEMENT


ASSETS)


LIABILITIES)

Opening balance 370 8 8

Results through the income statement:

– Interest result 5 3 3

– Unrealised result on financial transactions 44 –2 –2

– Realised result on financial transactions - - -

49 1 1

– Investments / Disposals - - -

– Cash flows –5 –2 –2

Closing balance 414 7 7

The Level 3 items primarily concern structured interest-bearing securities that are rarelytraded. Therefore, the observable market data available for similar securities are not fullyrepresentative of the current fair value. The fair value of these transactions is determinedbased on public market data that are adjusted using significant input variables not publiclyobservable in the market. There were no reclassifications from and to Level 3 during thereporting period.


STATEMENTS


STATEMENTS51

Due to the successful completion in February of a 'true sale and buyback' of a major inflation-linked bond purchased in 2007, this bond is now valued at the amortised cost. This causedthe decline of the level 3 exposure at fair value in the first half of 2020.

Input variables which are not publicly observable in the marketFor determining the spreads of three inflation-related interest-bearing securities with amonoline guarantee, the following input variables which are not publicly observable in themarket are used:– recovery rates for the relevant debtors (40%) and the relevant monoline insurers (30%);– a correlation factor between the debtor and the monoline insurer (20%).

These input variables remained unchanged compared to 2019.

Sensitivity of the fair value of Level 3 assets and liabilities to a movement in significantinput factorsIn the sensitivity analysis, the components interest, inflation, liquidity and credit spreads arepresented in both separate and correlated figures. The following table indicates thesensitivity of Level 3 assets in the event of a separate absolute parallel movement in thesesignificant input factors. Even though there are no direct dependencies between these inputfactors, the total sensitivity of the instruments in the event of a simultaneous shift in thesethree input factors is also presented.


STATEMENTS


STATEMENTS52

30/6/2020 31/12/2019 30/6/2020 31/12/2019 30/6/2020 31/12/2019 30/6/2020 31/12/2019


VALUE THROUGH THE

INCOME STATEMENT


ASSETS)


LIABILITIES) TOTAL

Balance sheet value 196 441 2 5 –1 –4 197 442

Interest rate

+ 10 basis points –2 –10 0 –1 0 0 –2 –11

- 10 basis points 2 10 0 1 0 0 2 11

+ 100 basis points –21 –84 0 –25 0 3 –21 –106

- 100 basis points 24 115 0 8 0 –1 24 122

Inflation rate

+ 10 basis points 2 10 - - - - 2 10

- 10 basis points –2 –9 - - - - –2 –9

+ 100 basis points 21 110 - - - - 21 110

- 100 basis points –19 –82 - - - - –19 –82

Credit and liquidityrisk spreads

+ 10 basis points –2 –10 0 0 0 0 –2 –10

- 10 basis points 2 10 0 0 0 0 2 10

+ 100 basis points –21 –85 0 20 0 5 –21 –60

- 100 basis points 24 116 0 –1 0 –7 24 108

Total significant inputfactors

+ 10 basis points –2 –10 0 –1 0 1 –2 –10

- 10 basis points 3 10 0 1 0 –1 3 10

+ 100 basis points –23 –87 0 –6 0 5 –23 –88

- 100 basis points 27 121 0 7 0 –7 27 121

BNG Bank hedges nearly all its interest rate risks through swaps. The fair value changes ofinterest-bearing securities arising from a change in the interest curve alone therefore have alimited impact on the bank’s result and equity. By the end of the maturity of the assets andthe associated swaps, these changes in market value will approach zero, provided that allparties have met their payment obligations. On the other hand, interest rate shifts caused bya change in credit and liquidity risk spreads do have a direct impact on the result and theequity when a financial instrument is measured at fair value.

The major part of the level 3 instruments in the Financial assets at fair value through theincome statement balance sheet item (EUR 196 million) consists of so-called inflation-linkedbonds, where the interest rate risk and inflation risk have been hedged using swaps. Thedefault risk of the transactions is insured upon purchase through a guarantee issued by a so-called monoline insurer. If the value of such guarantees were set at zero, this would have had


STATEMENTS


STATEMENTS53

an unrealised negative effect on the result on financial transactions of EUR 28 million at mid-year 2020 (year-end 2019: EUR 46 million negative).

The sensitivity of these instruments in the Financial assets at fair value through the incomestatement item increased in 2020. The credit spread of these assets is the main unobservableparameter. A movement of the credit spread by +100 basis points has an impact ofEUR 21 million negative.

The Derivatives (stated as liabilities) item features a Level 3 separated option linked to theFrench government interest rate. This option is hedged with a Level 3 swap including anoption recognised under the Derivatives (stated as assets) item. These derivatives maturedin July 2020.

Fair value hierarchy of amortised cost transactionsThe table below provides an overview of the way in which the fair value is determined fortransactions recognised at amortised cost in the balance sheet.

30/6/2020




Cash collateral posted - 18,861 - 18,861

Interest-bearing securities at amortised cost 238 7,392 474 8,104

Loans and advances at amortised cost 836 100,274 8,382 109,492


Amounts due to banks 1 9,679 - 9,680

Cash collateral received - 1,279 - 1,279

Debt securities 91,453 25,169 1,160 117,782

Funds entrusted 3,045 1,923 1,094 6,062

Subordinated debt - - 45 45



STATEMENTS


STATEMENTS54

31/12/2019




Cash collateral posted - 14,643 - 14,643

Interest-bearing securities at amortised cost 203 7,404 290 7,897

Loans and advances at amortised cost 1,079 96,625 8,308 106,012


Amounts due to banks - 1,928 - 1,928

Cash collateral received - 1,137 - 1,137

Debt securities 89,385 22,922 1,159 113,466

Funds entrusted 2,433 - 3,326 5,759

Subordinated debt - - 45 45


The financial assets at amortised cost under Level 3 mainly relate to loans and advancessubject to capital requirements to BNG Bank’s statutory clients. Loans and advances tostatutory counterparties under government guarantees are included in Level 2, because ofthe strong correlation with bonds issued by the Dutch State. The financial liabilities atamortised cost under Level 1 relate to negotiable benchmark bonds issued by BNG Bank(Debt securities item). Private loans are classified under Level 3 (Debt securities and Fundsentrusted items).

7 Credit risk

Forborne exposuresForbearance concerns credit agreements for which the credit conditions have beenamended in the debtor’s favour because of the debtor’s precarious financial position, so asto enable it to fulfil its obligations. Exposures for which a payment holiday is given under amoratorium are not marked as forborne.


STATEMENTS


STATEMENTS55

30/6/2020

TOTAL

EXPOSURE

OF WHICH: FORBORNE

IN % OF TOTAL

GROSS OF

IMPAIRMENT

NET OF

IMPAIRMENT

Financial assets (excl. derivatives)

Cash and balances held with central banks 7,695 - - 0.0%

Amounts due from banks 59 - - 0.0%

Cash collateral posted 18,861 - - 0.0%

Financial assets at fair value through the income statement 1,516 - - 0.0%

Financial assets at fair value through other comprehensive income 10,213 - - 0.0%

Interest-bearing securities at amortised cost 8,064 - - 0.0%

Loans and advances at amortised cost 88,681 339 309 0.3%

135,089 339 309 0.2%


Contingent liabilities 1,647 - - 0.0%

Revocable facilities 4,111 7 7 0.2%

Irrevocable facilities 5,606 2 2 0.0%

11,364 9 9 0.1%

31/12/2019

TOTAL

EXPOSURE

OF WHICH: FORBORNE

IN % OF TOTAL

GROSS OF

IMPAIRMENT

NET OF

IMPAIRMENT

Financial assets (excl. derivatives)

Cash and balances held with central banks 1,272 - - 0.0%

Amounts due from banks 66 - - 0.0%

Cash collateral posted 14,643 - - 0.0%

Financial assets at fair value through the income statement 1,764 - - 0.0%

Financial assets at fair value through other comprehensive income 9,222 - - 0.0%

Interest-bearing securities at amortised cost 7,764 - - 0.0%

Loans and advances at amortised cost 88,279 346 320 0.4%

123,010 346 320 0.3%


Contingent liabilities 1,613 - - 0.0%

Revocable facilities 3,764 5 5 0.1%

Irrevocable facilities 7,151 10 10 0.1%

12,528 15 15 0.1%


STATEMENTS


STATEMENTS56

The credit agreements for which the contractual terms have changed as a result of thedebtor’s unfavourable financial position amounted to EUR 348 million (gross of impairment)at 30 June 2020 (31 December 2019: EUR 361 million). The total forborne exposure concerns12 debtors (year-end 2019: 9 debtors). No new forbearance measures were taken by thebank in the first half of 2020.

Non-performingPlease refer to Note 4 (Impairment on financial assets and off-balance sheet commitments)for disclosure of BNG Bank's definition of non-performing exposures. An exposure classifiedas non-performing can once again be regarded as performing if all of the followingconditions are met:– The debtor once again complies with all contractual terms (no default);– The debtor’s situation has improved to the extent that the debtor is able to meet payment

obligations according to an existing or adjusted payment profile (‘likely to pay’);– The debtor has no payment arrears exceeding 90 days.

Maturity analysis of performing past due exposuresThe figures comprise of past due exposures that are not included in impairment stage 3 underIFRS 9. Exposures for which a payment holiday is given under a moratorium are not markedas past due.

30/6/2020 31/12/2019

Less than 31 days - 2

31 through 60 days - -

61 through 90 days - -

Over 90 days - -

Closing balance - 2

MoratoriaDue to the COVID-19 pandemic banks within The Netherlands joined forces to supportcustomers by issuing payment holidays. So far, BNG Bank joines a moratorium for clients withbusiness lending products with an exposure below EUR 2,5 million. The following table givesan overview of the exposures related to this moratorium as at 30 June 2020. Exposures forwhich a payment holiday is given are not marked as forborne and all are performing. In TheNetherlands a Public Guarantee Scheme or legislative moratoria are not applicable. Thematurity date of this moratorium has not yet expired.


STATEMENTS


STATEMENTS57

Amounts in thousands of EURO 30/6/2020

GROSS CARRYING AMOUNT

Performing

Of which:

exposures with

forbearance

measures

Of which:

Instruments with SICR since

initial recognition but not

credit-impaired (Stage 2)

Loans and advances subject to moratorium 7,368 7,368 - 7,368

of which: Households 5,646 5,646 - 5,646

of which: Collateralised by residential immovable property - - - -

of which: Non-financial corporations - - - -

of which: Small and Medium-sized Enterprises - - - -

of which: Collateralised by commercial immovable property - - - -

Loans and advances subject to the moratorium are not impaired and there are no negativechanges in fair value due to credit risk.

Amounts in thousands of EURO 30/6/2020

NUMBER

OF

OBLIGORS

GROSS CARRYING AMOUNT

Residual maturity of moratoria

<= 3

months

> 3 <= 6

months

> 6 <= 9

months

> 9 <=

12 months > 1 year

Loans and advances for which moratorium was offered 42 14,735

Loans and advances subject to moratorium (granted) 21 7,368 98 63 206 360 6,640

– of which: Households 5,646 66 47 190 344 4,999

– of which: Collateralised by residential immovable property - - - - - -

– of which: Non-financial corporations - - - - - -

– of which: Small and Medium-sized Enterprises - - - - - -

– of which: Collateralised by commercial immovable property - - - - - -

Netting of financial assets and financial liabilities (derivatives)Financial counterparties with which BNG Bank is prepared to conclude derivativestransactions are offered netting agreements to reduce the credit risk. In addition, bilateralcollateral agreements are concluded. These ensure that market value developments aremitigated daily by collateral. The agreements are updated where necessary in response toregulatory changes. These agreements are not eligible for balance sheet netting, unless thecash flows are offset through central clearing parties. The following table shows the positionsif these agreements were, and were not, to meet the conditions for balance sheet nettingand if the collateral agreements were taken into account.


STATEMENTS


STATEMENTS58

30/6/2020

DERIVATIVES

STATED AS

ASSETS

DERIVATIVES

STATED AS

LIABILITIES NET

Netting of financial assets and financial liabilities (derivatives)

Gross value of financial assets and liabilities before balance sheet netting 14,502 –30,517 –16,015

Gross value of the financial assets and liabilities to be netted –3,793 3,793 0

Balance sheet value of financial assets and liabilities (after netting) 10,709 –26,724 –16,015

Value of financial netting instrument that does not comply with IAS 32 (netting of

derivatives with the same counterparty) for netting purposes –8,002 8,002 0

Exposure before collateral 2,707 –18,722 –16,015

Value of financial collateral that does not comply with IAS 32 for netting purposes –1,279 18,861 17,582

Net exposure 1,428 139 1,567

31/12/2019

DERIVATIVES

STATED AS

ASSETS

DERIVATIVES

STATED AS

LIABILITIES NET

Netting of financial assets and financial liabilities (derivatives)

Gross value of financial assets and liabilities before balance sheet netting 12,184 –24,831 –12,647

Gross value of the financial assets and liabilities to be netted –2,180 2,180 0

Balance sheet value of financial assets and liabilities (after netting) 10,004 –22,651 –12,647

Value of financial netting instrument that does not comply with IAS 32 (netting of

derivatives with the same counterparty) for netting purposes –7,802 7,802 0

Exposure before collateral 2,202 –14,849 –12,647

Value of financial collateral that does not comply with IAS 32 for netting purposes –1,137 14,632 13,495

Net exposure 1,065 –217 848

At 30 June 2020, the collateral posted for derivatives amounted to EUR 18.9 billion (2019:EUR 14.9 billion). A three-notch downgrade of BNG Bank’s credit rating would not impactthis amount (2019: EUR 34 million increase). The strength of the bank’s liquidity position issufficient to meet, and to absorb fluctuations in, collateral obligations.


STATEMENTS


STATEMENTS59

Investments in interest-bearing securities (IBS)BNG Bank’s IBS portfolio is held primarily for liquidity management purposes. The portfoliois composed of high-quality bonds, the majority of which are accepted as collateral by thecentral bank. BNG Bank’s total IBS portfolio can be subdivided into a liquidity portfolio andan ALM (Asset & Liability Management) portfolio. The liquidity portfolio consists exclusivelyof highly negotiable securities and is subdivided according to the various LCR levels, asshown in the table below. The ALM portfolio is subdivided according to type of security. Theportfolio developments are reported on a monthly basis. Using factors such as externalratings and internal ratings, the bank monitors the development on an individual basis. Theassets within these portfolios undergo an impairment analysis twice a year.

The amounts shown below per rating category are remaining principal amounts in millionsof euros. The total balance sheet value (gross of impairment) is also shown in the final column.The total value of EUR 19,113 million is recognised in the balance sheet items Financial assetsat fair value through other comprehensive income (EUR 10,213 million), Interest-bearingsecurities at amortised cost (EUR 8,064 million) and Financial assets at fair value through theincome statement (EUR 836 million).

30/6/2020

AAA AA A BBB

NON-

INVESTMENT

GRADE

TOTAL

NOMINAL

VALUE

TOTAL

BALANCE

SHEET

VALUE

Liquidity portfolio

Level I – Government/ Supranational 5,914 2,668 220 - 46 8,848 9,994

Level I B – Covered bonds 1,499 - 5 - - 1,504 1,560

Level II A – Government/ Supranational - 55 - - - 55 105

Level II B – Corporates - - 25 - - 25 26

Level II B – RMBS 546 - - - - 546 550

7,959 2,723 250 0 46 10,978 12,235

ALM portfolio

RMBS 226 269 118 - 22 635 633

ABS - 55 106 25 54 240 236

RMBS-NHG 3,452 83 151 - - 3,686 3,691

Other 343 356 456 252 73 1,480 2,318

4,021 763 831 277 149 6,041 6,878

Total 11,980 3,486 1,081 277 195 17,019 19,113


STATEMENTS


STATEMENTS60

31/12/2019

AAA AA A BBB

NON-

INVEST-

MENT

GRADE

TOTAL

NOMINAL

VALUE

TOTAL

BALANCE

SHEET

VALUE

Liquidity portfolio

Level I – Government/ Supranational 5,351 2,204 220 135 46 7,956 9,125

Level I B – Covered bonds 1,370 - - - - 1,370 1,428

Level II A – Government/ Supranational - 59 - - - 59 102

Level II B – Corporates - - 25 - - 25 25

Level II B – RMBS 1,061 - - - - 1,061 1,068

7,782 2,263 245 135 46 10,471 11,748

ALM portfolio

RMBS 20 295 127 - 23 465 463

ABS - 58 117 28 55 258 254

RMBS-NHG 3,008 89 159 - - 3,256 3,260

Other 473 380 442 260 75 1,630 2,333

3,501 822 845 288 153 5,609 6,310

Total 11,283 3,085 1,090 423 199 16,080 18,058


STATEMENTS


STATEMENTS61

Long-term foreign exposureThe following tables provide an overview of the long-term foreign exposures. Derivativestransactions and short-term transactions (including cash collateral with banks in particular)have not been included. The amounts shown are remaining principal amounts in millions ofeuros.

30/6/2020

AAA AA A BBB

NON-

INVESTMENT

GRADE

TOTAL

NOMINAL

VALUE

TOTAL

BALANCE

SHEET

VALUE

Supranational institutions 141 149 - - - 290 298

Multilateral development banks 339 - - - - 339 371

Austria - 896 - - - 896 964

Belgium - 276 - 132 - 408 578

Denmark 90 - - - - 90 91

Finland - 486 - - - 486 540

France 548 801 100 5 - 1,454 1,757

Germany 1,754 130 45 - - 1,929 2,189

Italy - 15 18 - 57 90 86

Luxembourg 144 - - - - 144 146

Portugal - - 51 50 100 201 205

Spain 63 254 303 - 68 688 787

Switzerland - - 86 - - 86 96

United Kingdom 652 355 279 249 50 1,585 2,408

United States 22 - - - - 22 24

Total 3,753 3,362 882 436 275 8,708 10,540


STATEMENTS


STATEMENTS62

31/12/2019

AAA AA A BBB

NON-

INVESTMENT

GRADE

TOTAL

NOMINAL

VALUE

TOTAL

BALANCE

SHEET

VALUE

Supranational institutions 269 204 - - - 473 493

Multilateral development banks 405 - - - - 405 434

Austria - 471 - - - 471 521

Belgium - 281 - 136 - 417 595

Denmark 90 - - - 90 91

Finland - 486 - - - 486 543

France 496 806 100 5 - 1,407 1,678

Germany 1,453 30 54 - - 1,537 1,815

Italy - 19 18 135 60 232 234

Portugal - - 54 50 100 204 209

Spain 65 276 319 - 69 729 830

Switzerland - - 90 - - 90 102

United Kingdom 609 380 301 261 54 1,605 2,291

United States 22 - - - - 22 23

Total 3,409 2,953 936 587 283 8,168 9,859

The non-investment grade items (i.e. items with a rating below BBB–) in Italy and Spainconcerns interest-bearing securities, including RMBS transactions. The non-investmentgrade exposure in Portugal and the United Kingdom concerns a limited number of privateproject financing schemes in the areas of infrastructure, education, energy and healthcare.The total fair value of foreign non-investment grade exposures amounted to EUR 291 million(year-end 2019: EUR 291 million).


Contingent liabilitiesThis includes all commitments arising from transactions for which the bank has issuedguarantees on behalf of a third party. These so called Letters of Credit are covered by depositsor a counter guarantee from public authorities. BNG Bank records contingent liabilities at theunderlying principal amount that would need to be paid in the event of the borrowerdefaulting.

30/6/2020 31/12/2019

Contingent liabilities 1,647 1,613


STATEMENTS


STATEMENTS63

Revocable facilitiesThis includes all commitments attributable to revocable current-account facilities.

30/6/2020 31/12/2019

Revocable facilities 4,111 3,764

Irrevocable facilitiesThis includes all irrevocable commitments that can lead to the granting of loans andadvances. In the table below, these facilities are divided into credit facilities and futuredisbursements of contracted loans and advances.

30/6/2020 31/12/2019

Outline agreements concerning the undrawn part of credit

facilities 3,824 5,230

Contracted loans and advances to be distributed in the future 1,782 1,921

Total 5,606 7,151


STATEMENTS


STATEMENTS64

Events after the balance sheet dateThere are no events after the balance sheet date to report that require adjustments of thefigures or disclosure in the Interim Report.

The Hague, 4 September 2020

Executive BoardMs G.J. Salden, ChairO.J. LabeJ.C. Reichardt

Supervisory BoardMs M. Sint, ChairJ.C.M. van Rutte, Vice-chairC.J. BeuvingH. ArendseJ.B.S. ConijnMs M.E.R. van ElstMs J. Kriens

REVIEW REPORT 65

Review report

REVIEW REPORT 66

To: the supervisory board and the executive board of BNG Bank N.V.

IntroductionWe have reviewed the accompanying consolidated interim financial information for the six-month period ended 30 June 2020 of BNG Bank N.V., Den Haag, which comprises theconsolidated balance sheet as at 30 June 2020, the consolidated income statement, theconsolidated statement of comprehensive income, the consolidated cash flow statement andthe consolidated statement of changes in equity for the period then ended, and the selectedexplanatory notes. The executive board is responsible for the preparation and presentationof this interim financial information in accordance with IAS 34, ‘Interim Financial Reporting’as adopted by the European Union. Our responsibility is to express a conclusion on thisinterim financial information based on our review.

ScopeWe conducted our review in accordance with Dutch law including standard 2410, Review ofInterim Financial Information Performed by the Independent Auditor of the entity. A reviewof interim financial information consists of making inquiries, primarily of persons responsiblefor financial and accounting matters, and applying analytical and other review procedures.A review is substantially less in scope than an audit conducted in accordance with auditingstandards and consequently does not enable us to obtain assurance that we would becomeaware of all significant matters that might be identified in an audit. Accordingly, we do notexpress an audit opinion.

ConclusionBased on our review, nothing has come to our attention that causes us to believe that theaccompanying consolidated interim financial information for the 6-month period ended30 June 2020 is not prepared, in all material respects, in accordance with IAS 34, ‘InterimFinancial Reporting’ as adopted by the European Union.

Amsterdam, 4 September 2020

PricewaterhouseCoopers Accountants N.V.Original has been signed byJ.M. de Jonge RA

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